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Sunday, February 23, 2014

New Coke Didn't Fail: The Strategy Did

Revisiting and debunking an accepted belief.

In going through the aisles at a local beverage distributor at which the variety of beer is unparalled (they sell a donut-flavored beer that comes in a tall pink bottle for $15 -- looks like Pepto-Bismol), I thought that all these brewers are getting their growth, it seems, through the introduction of new varieties and that it would indicate that growth of the "main" drink is stalling.

I thought back to the widely-accepted marketing disaster of "New Coke," where the company replaced its original brand with a sweeter version. (At the time my reaction to New Coke was "so what?" as it was not distinctive and provided no compelling reason to switch from my preference for Pepsi. Less filling.) It turns out New Coke wasn't a marketing disaster or a failure as a product. It was successful in taste tests and did lead to an increase in sales after the switch.

So what was the mistake? I propose the disaster was the removal of the old brand instead of its retention alongside the new formulation, because it removed a preferred and accepted flavor. The larger issue was the principle: the company was essentially making a choice for the consumer by removing the old drink, and the consumer resented this move. Lesson: Don't insult or take your customers for granted.

Some background is in order. In April 1985 the Coca-Cola Company changed the composition of its flagship drink to a reformulation which the public widely referred to as "New Coke." The impetus behind the change was Coca-Cola's declining market share against Pepsico. The new brand was introduced in April 1985 AND the company also immediately stopped production of the old formula. Coca-Cola's sales actually rose after the rollout. What did happen, though, is that a small but sizable vocal minority rejected the flavoring change. Also noteworthy is that Coca-Cola did not introduce the new drink as an alternative brand, but instead replaced the "old" flavoring. I argue that had the old flavoring been retained alongside the new drink, consumers would have applauded, sales growth would have been realized without the publicity downside from a segment of the market, and the company would have achieved its market share growth objective. (I will note that a major obstacle for even the established companies, and definitely for beverage startups, is to even get supermarket shelf space or space in independent distributors' trucks.) Lesson learned. Now all the beverage bottlers, including the beer companies, follow suit. Adding new flavors is the way (and it seems, the only way) to get growth. Guinness and Samuel Adams, to name two, catch my eye as beer brands rolling out new varieties while keeping their iconic originals. (Imagine the heresy if Guinness stopped making its original draught and replaced it with a shandy?)

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